12/17/2014

The Technicalities of Reverse Mortgages: Are You a Non-Borrower Spouse?

Could the lady in this photo be someone in your family?

 Per a HUD (the overseer for reverse mortgages) statement dated September 4, 2013, reverse mortgage borrowers are advised that the both the borrower and his/her spouse should be counseled:  "One main concern for the non-borrower spouse is when the borrowing spouse passes away and the loan becomes due and payable. More often than not, the surviving nonborrower spouse, who is not on the deed, may not be able to pay the balance due or meet the criteria to qualify for a HECM of their own on the property in order to remain in the property. During counseling, all parties must be made aware that the HECM cannot be assumed by the non-borrower spouse." 

A non-borrower spouse may not have protection, and may be forced into a foreclosure situation if he or she is not able to buy out the reverse mortgage.  In a situation involving a 92-year-old widow in Arizona, this article outlines the action ultimately taken because of intervention by the Consumer Financial Protection Bureau (CFPB) when appealed to by the woman's son, where Bank of America bought the reverse mortgage after the widow claimed she was unaware that her name was not put on the loan, and the Bank stopped its foreclosure action and allowed her to continue living in her home. 

This Arizona story is not an everyday scenario, however, so the counseling described above is designed to make the parties aware of the position a non-borrower surviving spouse could be put in after a spouse's death or permanent placement in a facility, because, according to the HUD guidelines, the loan is then due and payable.  And how soon is "due and payable"?  Per All Reverse Mortgage Company's site: if a borrower passes away or
"if a borrower is forced to go to a hospital for more than 12 consecutive months and there is not still one original borrower remaining in the home (not a family member, but a borrower who is on the loan), then the loan shall become Due and Payable and must be paid in full at that time," also, a borrower is urged to contact the servicer if he/she plans to be away for an "extended vacation".  This is important because a reverse mortgage requires the borrower(s) to reside in the property as their principal residence, however, that doesn't mean people don't take trips, so communication is important. 

For borrowers interested in future application for a reverse mortgage, as of March 2, 2015, lenders will be required to review their:

• Credit reports.
• Payment histories on property taxes, homeowners association fees and hazard insurance premiums.
• Income from full-time and part-time employment, Social Security, pension funds, regular draws on IRAs and 401(k) accounts, plus any earnings on investments.
• Recurring household debt obligations.

FHA wants lenders to come up with a cash flow and residual income analysis.
 For further help on this topic, please contact me directly and I will be happy to refer you to a qualified reverse mortgage lender. 
One technicality tucked away in FHA’s regulations can snag owners whose spouse dies after taking out the reverse mortgage. If the surviving spouse’s name does not appear on the mortgage documents, the outstanding debt balance becomes due and payable. If the surviving spouse can’t afford to buy the house to make the payoff, the property may be put up for foreclosure sale. - See more at: http://therealdeal.com/blog/2013/03/01/232102/#sthash.Oty7WfpJ.dpuf

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